The impact of COVID-19 on people’s finances and banking behaviours in the UK
The COVID-19 pandemic has brought our personal finances into sharp focus: changing our spending habits, new ways of managing money and, unfortunately for many, a reduced income.
We released a survey to 1072 members of our UK panel to dig into the impact of COVID-19 and lockdown on people’s finances and to uncover more about how banking behaviour is affected both now and in the future. 33% said their income had decreased and almost half feel less secure about their future finances. A change in lifestyle and limited social contact means many have also changed the way they spend and manage their finances, with an acceleration in digital dependence.
In this article we’ll explore these issues based on survey feedback and reveal responses to rising concepts in the financial world including a cashless society and open banking.
“At such an unprecedented time, this in-depth survey, with over a thousand participants gives us a welcome insight into how behaviours are changing. As a Digital Marketeer it gives me the confidence to act on the results with my Financial Services clients. I was especially curious to see if we are getting what we need online, from our financial services providers.” Debbie Rhodes, Senior Marketing Consultant
A decrease in income and an increase in borrowing means a less secure future for most
By April 2020, the COVID-19 crisis had already led to significant falls in employment, earnings and income across the country as social contact was restricted and distancing measures were put in place. Out of our respondents, 33% experienced a decrease in wages, and many others experienced a decrease in income from savings or investments, as well as an increase in borrowing.
With roughly just a quarter of respondents receiving some kind of government support, it’s unsurprising that 45% were feeling less secure about their future. Most shared how they felt debts grow, but also concerns around meeting bill payments, job security, the economy, and the chance of a recession beginning to loom. There’s evidence that financial impact is also strongly linked to household income, demographics and geographic location, as poorer households, females, younger generations, and areas dependent on tourism and leisure have been the worst hit.
“My husband’s work has changed, and our income is reduced, I don’t know if it will increase again. Everything is getting more expensive. I worry about the future.” Survey respondent
Tighter belts and a change in lifestyle have seen shifts in spending behaviour and money management
Whilst consumers are experiencing increased financial pressure, most are also undergoing a change in spending behaviour. 62% of respondents reported spending more on groceries, which was closely followed by household bills and entertainment subscriptions, whilst travel expenses, holidays and eating out were reduced for at least 82%, reflecting the home-based lifestyle.
Experts also suggests major purchases have been delayed as a result, as 14% postpone life events such as weddings and house purchases.
For some this has meant an increase in savings or being able to pay off debts, but unfortunately for at least 30%, even with this change in spending, they’ve still had to rely more on credit or bank overdrafts than previously.
“I have never used my overdraft or credit card, now I’m owing money on both.” Survey respondent
But over 75% have not considered financial advice, especially from a bank
Despite evident financial pressures, the majority of respondents did not look for financial advice during lockdown. When asked, most explained they would go to the likes of Money Saving Expert or their own family and friends, with only 32% explaining they would consider visiting their bank’s website or app. This indicates limited customer trust in banks when it comes to financial advice and an opportunity for businesses to promote their role in supporting customers.
“Only 23% looked for financial advice and just a third of those used their bank’s website/app for advice, preferring Martin Lewis and trusted friends/family. Does the industry need to do better? How do we change this and gain customer trust?” Debbie Rhodes, Senior Marketing Consultant
Half say the pandemic has changed the way they use cash
The closure of bank branches, an increase in online transactions, and government advice to avoid handling cash has accumulated to a decline in the use of cash during the pandemic. The survey data reflected this as over half said the virus has made them less likely to use cash. Potentially impacting this shift is the recent increase in the transaction limit for contactless payments to £45 and a steep reduction in UK ATM transactions as of March 2020. Predictions were always in place for a cashless society in the next 10 to 15 years, but current momentum suggests this could now happen much sooner, especially as challenger banks such as Monzo introduce fees for large cash withdrawals.
And an acceleration in use of online and mobile banking
Although 92% of respondents already used online or mobile banking before lockdown, at least an additional 4% are now using online banking, and around 10% less are visiting branches. Even for those who were already setup online, many added that their use of online banking has now increased, with regular interaction involving checking balances, transferring money and making payments, therefore reflecting the reduction in cash usage.
However, use of online banking is not without frustrations, as many raised issues around limited functionality, tricky navigation, and extreme security measures which make it difficult to use in comparison to just ‘speaking to someone’ in-branch. In a recent survey, Deloitte found similar results, as despite a 9% increase in online banking usage amongst respondents, 86% said they would still use in-branch services following the crisis.
But a strong majority are against a cashless society, especially considering the potential impact on elderly and vulnerable audiences
Despite a reduction in cash usage and greater dependence on online banking, for at least half of respondents, the role of cash was considered vital and something ‘we will always use’. Almost three quarters also admitted they do not think we should go completely cashless with some putting it down to practicality – the ease of monitoring spending, and its role in gift giving. But many raising concerns around the impact on older generations and vulnerable people who may not have or be able to access their finances digitally.
“Elderly and vulnerable people use cash and are not as confident with cards or online banking, so it’s not fair to the older generation.” Survey respondent
This is a topic currently under review by a number of financial organisations as they acknowledge a potential ‘payments divide’ between those with access to digital payment and those without, who in the UK currently make up at least 1.3 million (Hearing, 2020). Audiences particularly affected include the elderly and vulnerable who are less accustomed to digital channels and will require more support and resources from banks if they are to be encouraged to switch. Setting a good example is Mastercard, who have recently partnered with several organisations to launch their ‘Leave nobody in the dark’ campaign, specifically aimed at providing support for those digitally or financially excluded in the UK who are also likely to be the hardest hit by the impact of COVID-19.
What about Open Banking?
Although a fairly recent concept in the banking world, Open Banking has been identified as potentially beneficial to consumers amidst the current crisis. Open data can be used to understand a person’s financial position in the circumstances of borrowing, credit assessments, or when identifying the financially vulnerable who need support.
We used our survey as an opportunity to understand the public’s understanding of Open Banking, and staggeringly, only 20% said they understood what Open Banking was, and of these almost a third were unable to give a correct description. After having the concept explained, respondents identified the potential benefits of Open Banking including having easy access to their accounts in one place, and being able to keep a better eye on their financial situation, however there was still a great deal of concern relating to data sharing, fraud and trust.
“It’s too dangerous as data from all my banks is too easily retrievable by a hacker. Instead of hitting one bank, a hacker can hit the servers of an open banking app and steal everything about a customer in only one hit.” Survey respondent
With awareness so low and concerns so high, the likelihood of Open Banking being widely adopted is limited. Marcus Martinez of Microsoft compares consumer perceptions of banking to utilities. It’s considered an essential service running in the background, they don’t give much thought to how it operates, but expect it to be convenient, easy and secure. This combined with the ‘fear’ banks have instilled around security and data sharing, means that it is now the responsibility of banks to firstly better integrate Open Banking into current online journeys, but also to educate us on why we should be using open banking and how it will be safe.
“The lack of Open Banking understanding and our lack of trust of it are telling, with only 20% understanding it well. Does that mean banks haven’t put enough emphasis on the benefits to their customers? There’s certainly an opportunity here to spread the word and further support customers with their financial planning and management.” Debbie Rhodes, Senior Digital Marketing Consultant
The future… an opportunity for banks to excel digitally
Recent circumstances have undoubtedly created a financially turbulent and uncertain time for the UK population. Our survey results highlight not only the change in financial position, but also the changes in behaviour as a result of the crisis.
Currently trust is low, face to face reassurance is limited, but digital engagement is higher than ever. Although many have emphasised how digital experiences don’t necessarily replace personal contact when managing their finances, the likely continuation of social restrictions into the near future means it is the responsibility of banks to ensure digital experiences are meeting physical experiences – maximising trust and building seamless services.
“The ultimate goal for the digital experience is to feel as personal and supportive of our needs, as it does when we talk to a great member of staff or visit a branch. Now that more people than ever before are using digital channels, we have a real opportunity and hopefully an open door on budget, to push for the best user experience possible. We certainly have nowhere left to hide.” Debbie Rhodes, Senior Digital Marketing Consultant
To find out more about the impact of lockdown and COVID-19 on how people bank and manage finances in the UK, you can download the full survey report below.